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Public Choice
Published in: Public Choice 1-2/2016

30-01-2016

Tax limits and local elections

Author: Federico Revelli

Published in: Public Choice | Issue 1-2/2016

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Abstract

This paper exploits variation in tax limits across over 7000 Italian municipalities during the 2000s to investigate their impact on voter turnout and local election outcomes. The empirical analysis is based on a panel data estimator on about 14,000 municipal elections during the 2001–2010 decade and on a quasi-experimental approach focusing on the fiscal limitation treatment of municipalities (local income surcharge freeze) in the years 2001 and 2006, where the trajectory of local turnout in the concurrent general elections is used as the counterfactual. The evidence suggests that tax limits provoke: (a) a modest fall in voter turnout in mayoral elections; (b) a mild decrease in the number of mayoral candidates; (c) a sizeable widening of elected mayors’ win margins and some improvement in mayors’ valence proxies. The evidence is compatible with the hypothesis that the imposition of tax limits lowers the ideological stakes of local elections, favors party-line crossing, and promotes vote convergence based on the valence of candidates.
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Footnotes
1
Two-thirds of the council seats are assigned to the councillor candidates (frequently grouped in one or more parties) supporting the mayor who is elected.
 
2
Municipal governments are in charge of urban public transport, road maintenance and cleaning, waste collection and management, water and sewer services, environmental monitoring and protection, planning and zoning.
 
3
For instance, in the elections held in 2009 in the municipality of Monte San Vito (Marche), 5374 registered voters, the top two candidates each got exactly the same number of votes (1653), thus requiring an ad hoc second round of elections.
 
4
The local property tax was introduced in 1993, subject to state-imposed, two-sided rate limits that remained unchanged (0.4 and 0.7 %, respectively, on the cadastral value of property—i.e., the periodically assessed rental value of property that is recorded in the municipal register).
 
5
In fact, municipalities had very little chance of using the local property tax to counteract the restrictions on the local income tax: most of them were stuck at the statutory maximum property tax rate, and a large fraction of the property tax base was exempted from the municipal tax by national law.
 
6
The Italian Ministry of the Interior manages and keeps detailed records of all municipal elections in ‘general law’ Italian regions, or around 90 % of all local elections (http://​elezionistorico.​interno.​it), while municipal elections are autonomously goverened and administered in `home rule’ regions. Data on municipal income tax rates and elections prior to 2001 are lacking or incomplete.
 
7
The tax freeze endogeneity issue is discussed in Sect. 3.5.
 
8
Two of the 14,561 observations in Table 1 drop because the reported turnout rate was 100 %, leading to a final dataset of 14,559 observations in Table 2.
 
9
In the subsequent years (2007–2008), the tax freeze was lifted, to be put back in place in 2009–2010 on all authorities.
 
10
Once at the polls, voters could in principle abstain from voting in either election if they wished.
 
11
Two-digit figures are rare, and usually occur in larger cities. Roma had a record 16 mayoral candidates in the 2001 elections, and 12 in the 2006 elections. Milano had 10 mayoral candidates in both 2001 and 2006.
 
12
The first round outcome is considered in case the election has a runoff stage.
 
13
Recent research has used panel data on Italian municipalities to investigate the effects of the DSP on a number of local policies, including compliance with the DSP rules, size of budget deficits, and spending composition and growth (Balduzzi and Grembi 2011; Bordignon et al. 2011; Grembi et al. 2012).
 
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Metadata
Title
Tax limits and local elections
Author
Federico Revelli
Publication date
30-01-2016
Publisher
Springer US
Published in
Public Choice / Issue 1-2/2016
Print ISSN: 0048-5829
Electronic ISSN: 1573-7101
DOI
https://doi.org/10.1007/s11127-016-0312-0

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